The taxpayer (a Canadian-resident individual) sold shares of a Canadian company to an Austrian private foundation (privatstiftung) which had been contemporaneously formed and funded in Austria by his father. The taxpayer, as an "ultimate beneficiary" under the foundation deed, was entitled to the property in the event that his father revoked the foundation. CRA assessed the taxpayer on the basis that s. 75(2) applied to attribute a taxable capital gain to the taxpayer when the foundation sold most of its shares to a third party at a gain.
After noting (at para. 48) that s. 75(2) "is generally intended to ensure that a taxpayer cannot avoid the income tax consequences of the use or disposition of property by transferring it to another person in trust while retaining a right of reversion or a right of disposition with respect to the property or property for which it may be substituted" (para. 48), Sharlow J.A. rejected the Crown's submission that s. 75(2) can apply (as in this case) to "property that has been purchased by a trustee from a beneficiary at fair market value and held subject to the terms of the trust," noting that this would produce absurd outcomes (para. 49). In particular, this could result in the same gain being attributed to a vendor to the trust of property, and the settlor who had contributed the property used by the trust to make that purchase.